For companies in complex industries, having an effective procure-to-pay (P2P) tax platform is critical to ensuring they are remitting the correct amount of sales and use tax on purchases. However, some older tax solutions aren’t built to catch on to the nuances that exist between application of sales and use tax on a sales transaction versus the purchase transactions. This often results in overpayments or underpayments. At scale, this can be an expensive oversight.
But first, let’s cover our bases.
What is a procure-to-pay system?
A procure-to-pay system, sometimes referred to as a purchase-to-pay system, is an integrated process created to support end-to-end transactions. This process is full of objective and subjective determinants. Structured and unstructured data that can be leveraged to determine the true nature of a transaction, which ultimately drives taxability.
It begins with goods and service requisitioning and ends with ready-to-pay files uploaded into your accounts payable system. There are a lot of moving parts within this process, and it requires a high level of teamwork between tax teams, IT, procurement and account payable teams. Without this collaboration, there is a significantly increased risk for discrepancies. In turn, audit risk increases as well.
Payment Discrepancies Happen…
The process of tax research and updating financial systems takes up a considerable amount of time and resources from in-house tax and IT teams. A typical P2P process can be filled with paperwork, process gaps, compliance issues and back and forth. It’s time-consuming and can be complicated. Even if the system is digital and frequently updated, it’s not always precise enough for today's ever evolving tax landscape. Meanwhile, tax authorities are increasing audit activity.
Getting tax calculations wrong within this process not only drains money from your business, but it can also incur tax penalties and interest, increases your audit exposure and more.
Procure-to-Pay Tax Automation Platform
Integrating a tax platform automates sales and use tax to improve the accuracy of taxes paid and accrued. How? Through a rule-based calculation engine. It applies constant tax logic across the procure-to-pay process, ranging from the requisition and purchase order page to the invoice reconciliation and approval stage.
This eliminates inconsistencies and human errors within the system. Adding a tax platform for your procurement process will reduce the burden and cost of continuous in-house research. Moreover, there will be less IT support needed to implement tax changes as this can now be managed by tax specialists.
Integrating a tax platform can maintain consistent tax coding which results in a reliable and repeatable process. Furthermore, you cancoordinate that single tax solution to your financial systems across the board for scalability and centralization.
You may want to consider automating your procure-to-pay process tax platform if:
· It is a challengefor your in-house team to keep up with the constantly changing tax
· Inefficiencies arise due to errors in tax coding decisions
· Increased audit activity reveals tax errors in procurement
· You are dealing with insufficient tax functionality in your ERP
Benefits of a Tax Platform in Sales & Purchasing
Create a Simplified Process
When utilizing a single tax platform for sales and purchasing you will see improved tax accuracy which will result in reduced audit risk. Not only will you spend less time on tax research and content maintenance, you will also experience a more reliable AP process with consistent tax coding.
Improve Supplier Relationships
Connecting with all your suppliers about shared data and documents becomes simple. It will also increase on-time payment performance by providing real-time visibility on transactions.
Increase Control and Minimize Risk
Improve strategic decision-making by providing a comprehensive view of your suppliers and spending from a centralized place. Through this you will be better able to control expenditure and minimize risk by having access to data.
Finding the Right P2P Tax Automation Platform
When it comes to finding the right P2P automation it’s imperative you ensure your choice is flexible and built to handle the nuances that accompany sales tax compliance.
The primary goal of an effective P2P tax platform should be to eliminate errors and ultimately avoid underpayments or overpayments of tax. The focus needs to be not just on the sales side of the business but on the procurement side as well. Keep in mind, most tax solutions don’t calculate a “variance”.
Many tax platforms calculate the tax, but don’t compare it to what the vendor charged. In fact, only CereTax returns the “variance” calculation to identify the over/under payment.
Usage matters
Oftentimes, usage variables involved in the P2P process are overlooked. Purchase-side taxability is more complex because usage variables are more subjective.
This subjective side lends itself to overpaid or underpaid tax. Vendors don't always know their customers are using the products they’re selling, often the vendor will default to taxing the good or service which results in overpayments.
What Sets CereTax Apart
When a company is audited by a state auditor, 90% of the examination will focus on purchase transactions. Same with a reverse audit looking for refunds. Whether it’s an overpayment or an underpayment, it’s an expensive problem to have.
Give us 30 minutes and we will show you CereTax’s indirect tax solutions can save you
countless hours and reduce risk when dealing with sales tax.
https://www.sap.com/insights/what-is-procure-to-pay.html#:~:text=Procure%2Dto%2Dpay%20is%20the,Receiving%20and%20reconciliation
https://simfoni.com/procure-to-pay/
https://simfoni.com/procure-to-pay/
https://kissflow.com/procurement/procure-to-pay-process-guide/
